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SAP cuts 2020 earnings guidance as customers postpone business
Krisztian Bocsi | Bloomberg | Getty ImagesBusiness software maker SAP cut its full-year earnings guidance after the coronavirus pandemic caused customers to put orders on hold, saying it now expects a single-digit decline after earlier forecasting 10% growth.The German company said it now sees operating profit, adjusted for special items, in a range of 8.1 billion…
Krisztian Bocsi | Bloomberg | Getty Images
Business software maker SAP cut its full-year earnings guidance after the coronavirus pandemic caused customers to put orders on hold, saying it now expects a single-digit decline after earlier forecasting 10% growth.
The German company said it now sees operating profit, adjusted for special items, in a range of 8.1 billion euros ($8.8 billion) to 8.7 billion euros, a fall of 1%-6% at constant currencies.
Many listed companies have abandoned guidance due to coronavirus but SAP, Europe's most valuable technology company, has more visibility than most as it makes most of revenue from subscriptions and software support that are predictable.
SAP stood by its mid-term growth forecasts that foresee an expansion of its profit margins of one percentage point per year through to 2023 as it focuses on shifting its business model to cloud subscriptions and away from software licenses.
“Our multi-year emphasis on building a strong base of more predictable revenue has made SAP more resilient than ever,” CFO Luka Mucic said in a statement.
“We will weather the COVID-19 crisis and emerge stronger than before as we have done in past downturns. Our updated guidance demonstrates that even in this challenging environment SAP remains healthy and stable.”
Citi analyst Julian Serafini said SAP's guidance “implies very soft new business throughout the year … which in turn implies a strong rebound in out-years in order to meet the maintained 2023 targets.”
The company's shares were indicated to open up 1.3%, having declined by 13% in the current year to date.
Prompted by German stock exchange rules that require listed companies to report material divergences in results or changes to guidance, SAP said that its adjusted operating profit edged 1% higher to 1.48 billion euros in the first quarter.
It said that, as the impact of the COVID-19 crisis rapidly intensified towards the end of the first quarter, a significant amount of new business was postponed.
This was reflected in a 31% decline in revenue from software licenses — SAP's cash cow business that generates much of its profits but is ‘lumpy' because revenue is recognized up front.
By contrast, cloud revenue grew by 29% on an adjusted basis at constant currencies. The share of predictable revenue overall grew to 76%, up by 4% year on year.
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